The Private Company Council

The Private Company Council This paper will discuss the recently formed Private Company Council, its role in the accounting profession, pros and cons associated with it, and my personal opinion on the council.

Background In the spring of 2012, the Financial Accounting Foundation (FAF) voted to establish a new council, the Private Company Council (PCC), which will serve two purposes: to identify and vote on proposed modifications and exceptions to U. S. GAAP for private companies as well as advise the Financial Accounting Standards Board (FASB) on private company considerations for the FASB’s projects.The overarching intent of the PCC is improve the process of setting accounting standards for private companies by modifying Generally Accepted Accounting Principles (GAAP) to better accommodate private companies and the users of their financial statements. To ensure that the PCC has the necessary tools to perform its function, the FASB is developing a Private Company Decision-Making Framework which will be a set of criteria for decisions about “whether and when to adjust requirements for recognition, measurement, presentation, disclosure, effective dates, and transition methods for standards that apply to private companies.

(Tysiac) After the PCC identifies regulations in U. S. GAAP that they wish to modify, they will forward proposed changes to the FASB. If a proposed change is endorsed by a simple majority of FASB members, the proposed change will then be made available for public comment. The PCC will consider the public’s comments, deliberate the proposed modification(s), and send a final report to the FASB.

After reviewing the report, the FASB will hold the final determination if the proposed modification(s) will be added to U.S. GAAP. Pros The FASB has always worked toward improving accounting standards and the formation of the PCC falls in line with the end goal of making the standards relevant for both the organizations and the end users of financial statements.

The PCC will serve as a valuable tool because it will cater to private companies with the intent to alleviate some of the heavy financial cost and time associated with following the current standards that may not necessarily apply to them.The end result will be a saving of time, money, and headaches on the part of the private companies as well as more clear, concise, and relevant financial statements for stakeholders. Cons There are those, however, who are opposed to the PCC. These opponents believe the FASB has not recognized the needs of private companies in the past when there was a precursor to the PCC, the Private Company Financial Reporting Committee which served from 2007 until its 2012 replacement by the PCC.Additional concerns surround the hierarchy of the endorsement process with many feeling that the FASB will have too much control over the PCC and would, therefore, hinder the PCC’s ability to make changes Impact on the Auditing Profession The AICPA is in full support of the PCC and has also “… announced plans to create an ‘other comprehensive basis of accounting’ (OCBOA) framework for small and medium-size private companies that are not required to file U. S.

GAAP financial statements. The OCBOA will be designed to provide a less comprehensive, less costly alternative. (Tysiac) As changes are proposed, endorsed, and eventually make their way into U. S. GAAP, the auditing profession will need to stay ahead of the curve to ensure that they are able to understand and appropriately apply these changes to best serve their clients. That will include continuing education and perhaps a chance for some of the smaller CPA firms to begin specializing in private companies.

Personal Opinion I believe that having the AICPA, the FAF, and the FASB all in agreement bodes well for the success of the PCC.With all parties on board, there should be some positive and very relevant changes applied to private companies allowing both the businesses and their stakeholders to profit. As with any new ventures, there will be some growing pains, but it appears that the PCC is off to a good start. With time the processes within the PCC will become more effective and efficient which will benefit everyone involved. References Financial Accounting Foundation. Financial Accounting Foundation Establishes New Council to Improve Standard Setting for Private Companies.

Www. accountingfoundation. org. Financial Accounting Foundation, 23 May 2012.

Web. 6 Apr. 2013. Melancon, Barry. "Why the AICPA Supports FAF's Creation of Private Company Council - AICPA Insights. " AICPA Insights.

N. p. , 13 June 2012. Web. 6 Apr.

2013. "Private Company Council IDs Three Projects for Agenda. " The Ohio Society of CPAs. N. p.

, 13 Feb. 2013. Web. 6 Apr. 2013.

Tysiac, Ken. "FAF Creates Private Company Council. " FAF Creates Private Company Council. Journal of Accountancy, July 2012. Web.

6 Apr. 2013.